@Hines, Can you provide the document where Vanguard makes the case that you describe. I recently read Vanguard's 2024 Market Outlook and did not walk away thinking that the forward thinking has changed much.
@ all, here is a video showing the approach I prefer when I estimate forward returns for various asset classes. This video is building a case for international diversification but if you sign up for Asset Camp, you can do your own analysis.
https://www.youtube.com/watch?v=mhCJTWYkixY
@golich428 Very interesting video. I am not familiar with Asset Camp or Money for the Rest of Us. Have you read his book?
Yes - I was one of his reviewers - a lot of good advice - don’t agree with everything.
I am a lifetime member and enjoy the information and perspective that David brings.
@golich428 A recent Bogleheads podcast features a discussion of the VCMM and the outlook: https://www.youtube.com/watch?v=6qNbIKZzeDM
Qian Wang, Ph.D., is featured. She is Vanguard’s Asia-Pacific chief economist and global head of the Vanguard Capital Markets Model team in the Investment Strategy Group.
https://corporate.vanguard.com/content/dam/corp/research/pdf/isg_vemo_2024.pdf
@wallace471 I listened to that podcast yesterday. It was a great add to the Vanguard report. I think she makes some good points that many people miss when they just read the report. I like the fact that she points out that these are long term projections that are probabilistic not deterministic. We should all recognize that there is an range of uncertainty around them. She also clarified what they mean by "Time Varying Asset Allocation". It is not a market timing approach.
We also need to listen to other economists and firms because there are apposing views to all these assessments that may be just as valid. It is up to us to determine what estimates of returns and asset allocation best fits our unique situation.
@pizzaman I think it we should start a new thread called: 2024 Market and Asset Allocation Assumptions
Came across this article by Larry Swedroe at Kitces.com on the topic.
https://www.kitces.com/blog/international-diversification-equities-economic-theory-risk-management/
"In addition to overlooking global long-term recovery patterns, investors often fail to consider the important role that valuation changes play in investment returns. Despite the caveat that “past performance is no guarantee of future results”, the patterns of historic past earnings data can offer insight into how a company is valued, which can influence the performance of its shareholders’ equity. For example, a strong case has been made for the predictive value of the CAPE 10, a price-to-earnings metric designed to assess relative market valuation, which is especially insightful when it comes to long-term returns. As while investment returns can be driven by underlying economic performance, such as through growth in earnings, they can also be driven by changes in valuations. And even though timing markets based on valuations in the short-term has not proven to be a successful strategy, the CAPE 10 has been positioned as a useful predictor of long-term future returns. Given the current (as of March 2023) economic positions for the U.S. CAPE (at 3.4%) and the EAFE CAPE 10 (5.6%), unless these values change, investors can reasonably estimate EAFE markets to outperform the S&P 500 by 2.2% annually."
The U.S. gross domestic product – the value of all goods and services produced in the U.S. – expanded by 2.5% last year, more than any advanced economy in the world, according to an International Monetary Fund analysis. It’s projected to do the same in 2024.
Consumer sentiment has climbed 29% over the past two months, the largest two-month increase since 1991, according to the University of Michigan’s frequently cited consumer survey. It’s largely the result of an improved outlook on inflation and their personal finances. The consumer confidence index is now 60% higher than the all-time low measured in June 2022 and is at its highest level since July 2021.
'It’s rare to see this level of agreement across the population and across different aspects of the economy,' said Joanne Hsu, director of the University of Michigan’s consumer index survey.
In the fall, Hsu said, consumers were reserving judgment on whether the inflation slowdown would stick. 'Now with so many months of sustained slowdown in inflation, I think consumers are finally starting to feel assured,' she said. 'They are ready to take a breath.'
@pizzaman Sure feels like goldilocks, which always unsettles me 🙂 There's a lot going on in the world. I hope folks don't get lulled into thinking this is a forever economy and make sure to keep their debt low, solid emergency fund, expenses reasonable, asset allocation and location sane, and most of all follow the plan/roadmap that PRC lays out and indicates should be successful!
Recession has struck some of the world’s top economies. The US keeps defying expectations
But, for now, the outlook continues to appear better for the United States than many other big economies. The mood on Wall Street is so positive that the main measure of the U.S. stock market, the S&P 500 index, topped the 5,000 level last week for the first time.
“First and foremost, it’s important to emphasize that the market’s performance is more a reflection of a thriving economy rather than unwarranted ‘animal spirits’ from investors,” according to Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management.
When it upgraded its forecast for global growth in 2024 a couple weeks ago, the International Monetary Fund cited greater-than-expected resilience in the U.S. economy as a major reason.
Several unique characteristics of the U.S. economy have sheltered it from recessionary storms, analysts say. The U.S. government provided about $5 trillion in pandemic aid in 2020-2021, far more than overseas counterparts, which left most households in much better financial shape and supported consumer spending well into 2023.
The Biden administration has also subsidized more construction of manufacturing plants and infrastructure through additional legislation passed in 2021 and 2022 that was still having an impact last year. About one quarter of the U.S. economy’s solid 2.5% growth in 2023 was made up of government spending. Republican critics, however, charge that the extended spending contributed to higher inflation.
“We had some policies that I do think helped us a lot,” said Diane Swonk, chief economist at KPMG. “But also the structure of our economy is so much different.”
Americans have been better protected from rising rates than U.K. counterparts, for example, because most U.S. homeowners with mortgages have long, 30-year fixed rates. As a result, the Federal Reserve’s rapid rate hikes of the past two years -- which have lifted mortgage rates from around 3% to about 6.7% -- have had little effect on many U.S. homeowners.
Yet their British counterparts carry mortgages that have to be renewed every two to five years. They’ve struggled with rapidly rising mortgage rates as the Bank of England has lifted borrowing costs to combat inflation.
Another benefit for the United States is that it experienced a surge in immigration in recent years, which has made it easier for businesses to fill jobs, potentially expand their operations, and has led to more people earning wages -- and then spending those earnings.
Germany slashes 2024 growth forecast to just 0.2% as economy in ‘tricky waters,’ minister says
Germany’s gross domestic product is now expected to grow by just 0.2% this year, as the country wades in “tricky waters,” German Economy Minister Robert Habeck said Wednesday.
The revised GDP growth forecast is down from a previous estimate of 1.3%. Habeck said the government now anticipates German GDP to increase by 1% in 2025.
Before the Bell spoke with Claudio Irigoyen, head of global economics at Bank of America, about the dollar’s rally and what it means for Americans and the world.
This interview has been edited for length and clarity.
What’s powering the dollar’s rally in addition to the US economy’s resilience?
Claudio Irigoyen: The dollar is strengthening for a combination of reasons. It’s not only the Fed saying that it is not going to cut rates soon, which has caused markets to reprice. It’s also that the US economy is doing better than the rest of the main regional blocs, including the euro zone. Most of the surprises in growth keep coming from the US.
It is also because every time you have a shock on the geopolitical side, there is this flight to quality components, which helps the dollar. And if you keep having incidents in the Middle East, those shocks will cause a spike in energy prices and those shocks have a proportionally bigger effect on Europe and Japan, but not as much on the US, which is more energy independent.
https://www.cnn.com/2024/04/21/markets/stocks-week-ahead-dollar-rally-global-economy/index.html
